US dollar keeps post-payrolls bounce, but bulls leery

[SYDNEY] The US dollar got off to a steady start on Monday after signs of wage pressure in the December US jobs report pushed up Treasury yields, but bulls were wary of a setback following last week's wave of profit-taking.

A holiday in Tokyo kept trading light, and the dollar index was just a fraction firmer in early trade at 102.26, near the middle of last week's wide 101.30 to 103.82 range.

The US dollar was perched at 117.07 yen, having recovered all the way from a 115.06 trough on Friday, but remained well short of the next major chart target around 118.60.

The euro stood at US$1.0527, after ricocheting between US$1.0339 and US$1.0621 last week.

There were enough hints of inflationary pressure in Friday's mixed US payrolls report to support the case for more interest rate hikes and reverse a down move in yields and the US dollar.

Yields on US 10-year notes rose from 2.33 per cent to 2.42 per cent on the data. Yet that remained some way from the December peak of 2.64 per cent, and the spread over German yields was also off its highs.

"It is interesting to note that while there has been some volatility in the meantime, US equities, the USD, and 10-year yields are all sitting at roughly similar levels to when the Fed hiked nearly four weeks ago," said analysts at ANZ.

"It does look like markets are asking whether the reflation theme is now in the price, suggesting that something additional will be needed to set markets into new trading ranges."

The outlook for US rates may become a little clearer when Federal Reserve Chair Janet Yellen appears at a webcast town hall meeting with educators on Thursday.

Two regional Fed presidents will speak later Monday, and there are no less than five speeches lined up for Thursday. The main economic release of the week is not until Friday, when retail sales figures for December are out.

Dealers in Asia will also be keeping a wary eye on the yuan after Beijing engineered a sharp tightening in liquidity last week that squeezed speculators out of short yuan/long US dollar positions.

Figures out over the weekend showed China's foreign exchange reserves fell to nearly six-year lows in December as Beijing fought to stem an outflow of capital that could ultimately force another devaluation of the currency.

REUTERS